In terms of the law, only the High Court can make a determination of whether a company is fronting. That notwithstanding, the Chief Negotiator at the Ministry of Investment, Trade and Industry (MITI) and a senior lawyer have independently reached the conclusion that the Molapo Pick n Pay supermarket, whose majority shareholder is a company based in the Caribbean Islands, is part of an elaborate and long-running fronting operation.
The Molapo supermarket is owned by a Botswana-registered company called Horn of Africa in which the majority shareholder is Explosive Retailing. The latter is registered in the British Virgin Islands, a British overseas territory located in the Caribbean Islands to the east of Puerto Rico, itself an unincorporated territory of the United States. One of the Horn of Africa directors, Maheshbhai Patel is the majority (99 percent) shareholder in a Botswana-registered company called Technisa that does business with Molapo Pick n Pay through Horn of Africa. The only other Technisa shareholder is Timuhwe Stanley Tshenolo whose shareholding is 1 percent. The memorandum of agreement (MoA) between Horn of Africa and Technisa says that the latter “is the holder of certain trading licences as well as management, retail and bakery and fresh produce expertise.”
In terms of the Trade Act, certain businesses such as bakery, fresh produce, take-away and bottle store, are reserved for citizens. That means that Horn of Africa, which has South African shareholders, cannot operate such businesses at the Molapo Pick n Pay. On the other hand, Technisa is wholly citizen-owned (with Patel having been naturalised as a Botswana citizen) and can thus operate citizen-reserved businesses. However, papers before the Lobatse High Court assert that Technisa is merely a fronting operation for Horn of Africa. One such paper is a legal opinion written by Kgalalelo Monthe, who is the managing partner of Monthe Marumo and Company, one of the better known Gaborone law firms. Having analysed the MoA, Monthe came to the conclusion that “Technisa is merely a front to enable Horn of Africa to trade in citizen-reserved businesses such as bakery, fresh produce and the liquor licence bottle store.”
In his eight-page opinion, Monthe says that his “firm conviction” is based on two factors. The first is that Technisa has no employees, makes no purchases and does not fix prices or have any marketing authority. The second is that the MoA doesn’t give Technisa the right to trade at all, only responsibility to keep in place and manage the trading licences that are actually used by Horn of Africa.
“Overall, when one considers the agreement, it does not lend itself to be of any seriousness whatsoever such that even the duration is not stipulated other than that it will terminate by each party giving the other six calendar months’ notice. In fact, it is Horn of Africa that is actually trading and has to ensure the payment to Technisa on a monthly basis of the gross turnover in the reserved trades of bakery, fresh produce, and bottle store department of Horn of Africa,” Monthe said.
He added that the agreement is constructed in such manner that Technisa was never meant to operate the citizen-reserved businesses and that all the company did was procure trading licences to enable Horn of Africa to trade in citizen-reserved businesses contrary to provisions of the Trade and Liquor Acts.
“Given that Technisa has no employees, makes no purchases, does not determine the price of any goods for which it obtained licences, has probably no books as it is not trading, is seemingly a tool at the hands of the lessee, Horn of Africa, we are of the considered view that the conduct of Technisa and Horn of Africa is merely a front to obtain licences to enable the lessee, Horn of Africa, to trade,” wrote Monthe, adding a few sentences later that the end result of it all is that through this arrangement, a non-citizen company “is in fact, trading in trades reserved for citizens.”
The fronting issue was discussed at an August 24, 2015 meeting between MITI senior officials and two Sphinx Associates representatives ÔÇô one being Luc Vandecasteele, the owner of Molapo Crossing shopping mall. Minutes of the meeting quote the ministry’s Chief Negotiator, Phazha Butale, as confirming that what Horn of Africa and Technisa were doing amounted to fronting “which deprives Batswana of their right to trade independently.” As Chief Negotiator, Butale leads the country’s delegation when trade deals are negotiated with the World Trade Organisation, the European Union or whatever entity.
In papers before court, MITI’s Director of Trade is said to have prepared a sworn affidavit to the Directorate on Corruption and Economic Crime on this issue. In that affidavit, she reportedly says (in referring to the deal in question) that “in her opinion, fronting was taking place.” At the 2015 meeting, Butale told the Sphinx representatives that the ministry could not act on the matter because only a court of law can make a determination of whether or not a company is fronting. MITI officials also said that they never had a case firm enough to stand in a court of law and expressed the hope that “this case will be proven in court.” It so happens that the matter is in court as part of a defamation lawsuit against Vandecasteele and Sphinx Associates.
Vandecasteele’s sister, who used to work at the Molapo Pick n Pay, may have been the source for this explosive information. In an affidavit that he has deposed to, Vandecasteele says that his sister discovered that save for the butchery, all employees in citizen-reserved businesses at Molapo Pick n Pay were directly employed by Horn of Africa. On conducting his own investigation, Vandecasteele confirmed that indeed Technisa had no employees. At the Registrar of Companies, he obtained and inspected Technisa file and got to learn of a director (Tshenolo) that Sphinx didn’t know about. In his affidavit, Vandecasteele adds that the sub-lease agreement between Horn of Africa and Technisa “doesn’t specify the lease areas or reserved trades, nor is it specific on any rental due for the sub-let area. It is therefore not possible to determine the lease areas that Technisa uses to trade in the reserved areas.”